Published on 01 Aug 12
by "THE TAX SPECIALIST" JOURNAL ARTICLE
The allocation of value between land and non-land assets has direct duty and capital gains tax (CGT) implications. What is required for duty purposes is the apportionment of the market value of the whole going concern entity between land and non-land assets to assess whether the relevant duty threshold has been exceeded.
For CGT purposes, the value apportionment between land and non-land assets is required for a principal asset test to assess Australian CGT payable by foreign residents. In this article, the authors discuss relevant valuation principles, and conclude that a value apportionment exercise conducted for duty and CGT purposes warrants more complex and lateral valuation thinking than does the normal total value assessment exercise undertaken for the purposes of the underlying commercial transaction. Unfortunately, the necessary shift in valuation thinking when the focus of valuation changes from total value assessment to value apportionment has received little attention in practice, and there are likely to be negative flow-on duty and CGT implications.